Choose whether the given statement is True/False:

Bank needs collateral to recover money if a borrower is unable to give money back.

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True

False

answer is A.

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Detailed Solution

The above Statement is true.
The bank needs collateral to recover money if a borrower cannot give money back. Collateral is an asset such as land, buildings, livestock, vehicles, or deposits with the borrower's banks and used as a guarantee to the lender until the loan is repaid. Before making a loan, the lenders need collateral, an asset owned by the borrower and used as a guarantee to the lender until the loan is returned. Collateral with the lender proves that the borrower will repay the money. By keeping collateral with the lender, the borrower is bound to pay the interest regularly because the borrower does not want to lose the collateral. It guarantees the Bank that if the borrower fails to repay the loan, the Bank can sell the collateral and obtain the amount.

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